NORWALK, CT – At the September meeting of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), the boards of each organization met to discuss more of the proposed changes to lease accounting.

They discussed whether to include inventory assets related to a leased asset in the standard, the application of financial asset guidance to the right to receive lease payments, the accounting for residual value guarantees by lessors, and related topics.

For the issue of scope, the boards tentatively decided not to provide a scope exclusion from the leases standard for assets often treated as inventory, such as non-depreciating spare parts, operating materials, and supplies, and that are associated with the leasing of another underlying asset.

For financial asset guidance on the right to receive lease payments, the boards tentatively decided three things:

  • A lessor should subsequently measure the right to receive lease payments using the effective interest method.
  • A lessor should refer to existing financial instruments guidance (IAS 39, Financial Instruments: Recognition and Measurement, and FASB Accounting Standards Codification Topic 310, Receivables) to assess the impairment of that right to receive lease payments.
  • The leases standard should not contain an option for fair value measurement of the right to receive lease payments.

In the discussion on residual value guarantees by lessors, the boards tentatively decided that the leases standard would provide guidance on accounting for all residual value guarantees, regardless of whether they are provided by a lessee, a related party, or a third party.

They also decided that a lessor would not recognize amounts expected to be received under a residual value guarantee until the end of the lease. However, the lessor would consider those guarantees when determining whether the residual asset is impaired (i.e. whether the company’s asset is worth less on the market than its listed value on the company’s balance sheet).

For more information on the current status of the proposed changes to leasing standards, you can view a summary on FASB's website.